Why Some States Are Better Than Others For Startups

Though mergers and large corporations are becoming more prominent, small businesses still play a vital role in the U.S. economy. That entrepreneurial spirit is not only something to be lauded it should be encouraged. Starting a business is a very ambitious undertaking that one should not enter into lightly, either. It requires planning, investments, ingenuity and a dose of luck to successfully launch your small business. And if you’re starting a business, you’re sure to have several things on your mind to aid in the successful launch of your small business. If you’re like most prospective business owners, you’ll spend a significant amount of time seeking small-business loans. Obtaining the proper small business loan can make or break your plans so comparing possible lenders and rates is of the utmost importance.

Another item you will want to heavily consider is location. As we all know, location is among the most vital factors in determining a business’ success. Although, it isn’t only in the way you would think. While things like being ideally placed for foot traffic are certainly has a direct influence on your success, there are other factors to consider.

One aspect to consider as you go about starting your business is what state you reside in. For a variety of reasons, some states are inherently more entrepreneurial friendly than others. The state you reside in, or decide to open your business, can directly influence your ability to finance your business whether you choose to apply for a Small Business Association loan, meeting with venture capitalists or applying through various online lenders.

For example, potential business owners are increasingly more likely to receive Small Business Association-guaranteed loans in states like Utah and Massachusetts. Moreover, businesses started in Georgia and Connecticut tends to be approved for some of the largest Small Business Association loans. Because most people don’t have several thousand dollars lying around to start a business, receiving these loans may be the most instrumental aspect to your success. You can’t run a successful business without some starter money, can you?

In addition, your respective state, or even cities, tax laws can directly impact your business as well. Traditionally, states and cities set up favorable regulations, cash incentives and tax breaks in order to encourage citizens to start their own business. Big or small, businesses face income taxes, property taxes, sales taxes, unemployment insurance taxes, capital stock taxes, inventory taxes and gross receipts taxes. These taxes vary by state and locality, and greatly affect a company’s bottom line and must be accounted for.

Of course, dealing with regulations and red tape shouldn’t impede you from starting a business. It’s simply something to consider. Particularly if you have the option of starting a business in a state other than the one you currently reside in. For example, a state like Texas generally has lower taxes than New York or California, making it more favorable to start a business in Texas.

That said, there are some points which favor starting a business in states like California over Texas as well. In a recent study, it was revealed that four of the top five cities with the highest employee availability were in California. Those cities were Fresno, Stockton, Bakersfield and Modesto. Conversely, two of the cities on the lower end of that spectrum were in Texas. Those cities being Irving and Grand Prairie. So while the tax rates may not be quite as favorable in California, it may be more ideal for some people.

As you can see, there are certainly a lot of factors to consider when starting a business. And with those factors lie different interpretations and valuations. Simply, certain business owners value different things. In a survey conducted by Thumbtack, Texas, New Hampshire, Utah, Louisiana, and Colorado received the highest marks from owners in regard to friendliness to small businesses. Conversely, states like California, Connecticut, Illinois, Rhode Island, Massachusetts, Maryland and New York received the lowest marks for friendliness to small businesses.

But if you value receiving Small Business Association loans, states like California, Connecticut and New York are great places to start a business. The states of New York and California enjoyed 2.4% and 2.6% growth in small business from 2010 to 2013, respectively. And from 2014 to 2015, the average approved Small Business Association loan was well over $500,000.

And then there is the issue of property taxes, which we mentioned earlier. Recently, CNN Money released a top-10 ranking of the top-10 best states to start a business. And the results were fairly surprising.

Though this state probably wouldn’t cross your mind, South Dakota was ranked first. As surprising as the ranking is, it does make sense. South Dakota doesn’t tax personal income, corporate income or corporate capital gains, which makes the state one of the friendliest for businesses big and small. In addition, crime rates are low in South Dakota, which reduces the risk of robbery.

South Dakota wasn’t the only unusual inclusion on the list, though. Wyoming was ranked third by CNN Money for sensible reasons. The first reason is because energy costs are quite low in Wyoming. And this is complemented by the fact that Wyoming business owners pay no personal income, capital gains, corporate income or corporate capital gains tax.

But some of the usual suspects made the list as well. And that includes Texas, which is universally regarded as one of the best states for small-business owners, checks in at number 7. Citing the state’s lack of personal or capital gains taxes, and low corporate income and corporate capital gains levies, Texas is certainly an ideal location for your business.

Florida is another state for small-business owners. The Sunshine State enjoyed a 3.7% growth in small-businesses from 2010 to 2013. And like many of the other states which are favorable to businesses, it has no corporate or capital gains taxes nor does it have a death tax.

Starting a business is one of the biggest decisions you’ll ever have to make. And understanding your state’s regulations and why certain states are better can increase the likelihood that your business succeeds.